Should I set up a Limited Company for my Crypto business?
At some point in your trading life you will have asked yourself the million-dollar question:
"Do I set up a Limited Company for my Crypto trading or continue to trade under my own name?"
There is no simple answer to this question as several variables must be taken into account before an assessment can be made. But that's not the answer you're looking for, so let me break this down and tell you what an Accountant like myself would do and have done!
Let's start with the basics and determine what it would mean to set up a Limited company and start investing in Crypto assets:
Firstly, your Limited Company will receive the investments in Crypto and money earned is classed as the Companies.
Any profits earned will be taxed at the current rate of 19% Corporation tax.
If you want to transfer money from the company to yourself it must be extracted either as a salary or dividend. Both will incur additional taxes, and if you already have employment earnings that could be an additional 45% tax on top of the 19% Corporation tax charge you already paid!
When you look at the scenario above it almost makes no sense to set up investments through a Limited Company, despite Uncle Jack saying he's been doing this for the last 5 years!
We recommend investing in Crypto in your personal name and here is the logic to our reasoning:
You get an annual exemption on top of your personal allowance. Yes, you get 2 lots of exemptions; the first helps with your employment earnings, the second is purely for capital investments which Crypto is classed under. That means you won't pay any tax on the first £12,300 profit earned (2021-22 Tax year). Under a limited company that would mean an additional tax payment of £2337.
Capital gains tax rates are well below the income tax rates. That means you only pay 20% tax on your profits regardless of how much you make. That's a huge saving compared to the additional taxes payable if you extract profits from your Limited Company.
Once you pay the 20% tax the rest of the money is yours to do as you please. No further extractions are needed as you would with a Limited Company.
So if you're investing in Crypto assets with a long term view of growth, stick them in your own name. Better still, if you want to save further taxes then consider splitting your investments with your partner. See our blog for further details on this strategy;
Instances when a Limited Company is recommended
There are always scenarios that work better through a Limited Company. These include the following:
If you are running a Crypto business where the income would be classed under income tax rules, not capital gains.
If you have several partners investing with the same pot of investments.
You are involved in Staking, Mining or Nodes.
The above would be reasons to go down the route of setting up a Limited Company, as it makes sense to control income and split profits so everything is written in black and white through share allocations and director and Company ownership.
If you believe you need to set up a Limited Company, we can help organise and get you started with the right tools to record your transactions and ensure calculating your profits and tax at year ends becomes a breeze. You can book a free appointment with one of our Tax advisors to get started: